December 8, 2008

Legislators and furloughs: One down, 187 to go

We just got our first commitment from a legislator that he will voluntarily participate in the state government furlough. Maryland's contsitution actually prohibits the state from forcing legislators to take reduced salaries during their term in office -- even if the legislature votes to require it, they can't make it stick. This was an issue back in 1992 when the Senate voted to take furloughs, an entirely symbolic gesture that didn't actually force anyone to give up a nickel.

But today Del. Steve Schuh, a Republican from Anne Arundel County and something of a rising star in the legislature becuase of his fiscal accumen, sent out a news release announcing that he will donate an amount of salary equivalent to a furlough to the American Red Cross of Anne Arundel County.

“As a result of the national economic situation and persistent overspending by the state, Maryland faces a budget deficit approaching $1.5 billion," Schuh said in a statement. "If state employees are being asked to be part of the solution, I believe it is appropriate that I make an equivalent financial contribution.”

Last year he brandished an analysis of the 2007 special session tax increases claimin a family earning $64,000 will pay extra $351 under the plan.

Del. Schuh said his methodology was reviewed and approved by the Maryland Department of Legislative Services and economist John Lott, but he admitted to me in an email that both had done so by phone and he did not provide the name of the person from the DLS with whom he spoke.

His methodology was seriously flawed and overstated the impact of the tax increases on the hypothetical family in question.

He simply took the first year yields DLS estimated for the computer services tax ($214 million), corporate income tax increase ($112 million), closing the loophole on corporate property transfers ($14.1 million), and cigarette tax ($164 million) and divided them by the number of Maryland households (2.1 million).

So he assumed a family earning $64,000 will pay the same share of these taxes, either directly or indirectly, as a family earning $120,000, or $500,0000, or $5 million. Each of these families, he assumed, would pay the same fraction of the total estimated yield for those taxes.

Nonsense!

Economists recognize that most taxes on businesses will be passed on to consumers, so I won’t dispute his assumption that ALL the increased taxes on businesses are being passed on to consumers, and that all the consumers are in-state consumers.

You don’t need an advanced economics degree to question his assumption that a household earning $64,000 share an equal fraction of these new tax burdens with all other households in the state, regardless of income and therefore spending, not to mention smoking habits.

In fact, he himself acknowledged the disparity in spending based on income when he estimated that the hypothetical family earning $64,000 spends 22% of its income on taxable goods “per DLS fiscal policy note for House Bill 2.”

If he recognizes that a household earning $64,000 pays much less sales tax this year than a household earning $250,000, why does he assume both of these households pay the same amount in pass-through of tax increases on businesses, or otherwise share equally in the impact of the business tax increases?

Then there’s smoking. A smoke-free household isn't coughing up directly the $78 in increased cigarette taxes Del. Schuh assumed each of Maryland’s 2.1 million households is pay.

I'm sure the average chain smoker buying instate cigarettes is coughing up more than $78 this year in cigarette taxes, but such poor souls have no hope of recovering that expense by passing their out of pocket costs onto the general public.

Thus far, Del. Schuh's legislative work falls short of his credentials.

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Annie Linskey covers state politics and government for The Baltimore Sun. Previously, as a City Hall reporter, she wrote about the corruption trial of Mayor Sheila Dixon and kept a close eye on city spending. Originally from Connecticut, Annie has also lived in Phnom Penh, Cambodia, where she reported on war crimes tribunals and landmines. She lives in Canton.

John Fritze has covered politics and government at the local, state and federal levels for more than a decade and is now The Baltimore Sun’s Washington correspondent. He previously wrote about Congress for USA TODAY, where he led coverage of the health care overhaul debate and the 2010 election. A native of Albany, N.Y., he currently lives in Montgomery County.

Julie Scharper covers City Hall and Baltimore politics. A native of Baltimore County, she graduated from The Johns Hopkins University in 2001 and spent two years teaching in Honduras before joining The Baltimore Sun. She has followed the Amish community of Nickel Mines, Pa., in the year after a schoolhouse massacre, reported on courts and crime in Anne Arundel County, and chronicled the unique personalities and places of Baltimore City and its surrounding counties.